Marriage and Money: Will You Marry Me–and My Finances?

Here’s a guest post from our friends at Project Eve.

What is marriage? After the honeymoon ends and reality sets in (and let’s be real, it always does eventually!), marriage is a business transaction. It should be approached with sobriety, or pain can result. This newsletter, written jointly with tax advisor and trusted colleague R. John Smith, informs readers of what they really need to know before closing the deal, from a financial and tax perspective.

Here’s why marriage is no joke. It can create a tax bonus or penalty, wreck your credit score, or destroy your retirement savings. The Census says that the average duration of a first marriage in the United States in 8 years; the average age of a microwave oven is 9 years. Divorce rates are high, and you’ve got to be street smart when choosing a mate these days.

Does It Pay to Marry?

With the average wedding in New York City costing around $60-70k, the act of getting married is a serious investment. Consulting a tax advisor to assist with wedding planning could lessen the pain. Let’s visit Lisa, age 35, a Gen X female who works as an attorney, and her soon to be husband, John, also age 35, who is a teacher. If Lisa and John are planning a winter wedding, marriage may lower the tax bill for her (since Lisa’s income is much higher than her future spouse.) In this case a December wedding (tie the knot by December 31, 2013) would be preferable to a January 2014 wedding as the taxpayer will be treated as married for all of 2013. If both Lisa and John were to have relatively similar income levels, marriage may increase the tax bill for Lisa instead. In this case, waiting until January 2014 to get married will allow one additional year of more favorable single tax filing status.

How Your Union Affects Your Finances

Unmarried but living together. Research shows that 32% of Gen X females are currently divorced, separated, or never married. Those couples who choose to live together without marrying may wonder what that means for their taxes. Generally if Lisa and John’s state of residence recognizes a common law marriage, and it meets all the state requirements, they are married according to the IRS as well.

Widowed but still paying income taxes. With the life expectancy of our population increasing, in some cases recently widowed persons can be treated as married.

Married but not living together. Some married people who are not living with their spouses can be treated as single filer.

Same sex marriage. Currently federal law bans same sex couples from filing as a married couple even if the union or domestic partnership is recognized under state law. This matter is under US Supreme Court review and taxpayers are advised to consult a tax law professional for updates in 2013.

Women, Money and Marriage

With divorce rates skyrocketing, the investment implications of a marriage ending are more relevant than ever before. Being aware of this is especially critical for female breadwinners; remember the sad fact that if a woman is out-earning her husband, she is 40% more likely to get divorced and five times more likely to be cheated on. How riveting!

The laws vary, so be sure to consult a divorce attorney that is familiar with your state’s laws for advice before you even get married. For those who are marrying someone with less money in the bank, watch out – it just might go something like this… Let’s say that Lisa has a $50k investment account the day before she married, but the day after the wedding it rose to $90k. If she and her guy split up, she gets to keep the original $50k, but half of that $40k increase in value could possibly go to her ex! As long as those funds were incurred during marriage, her ex-husband might have the right to a good portion of it.

Love as a Business

Nothing in the world is better than love, not even money. But the reality is that marriage (especially for Gen X) is a business. When it comes down to it, the numbers simply have to work or else it’s probably not going to last in the long run. It’s hard to talk about these issues, but it’s the only defense. Proper communication can prevent the beauty of love from twisting into dissonance. As always, refer to a tax professional for tax advice.